Tesla's $1.5 Billion Bitcoin Move

In Tesla Inc’s annual report, the company disclosed a $1.5 billion cash conversion into bitcoin ($BTC) and its intention to accept bitcoin as a method of payment for purchasing Tesla electric vehicles. Tesla’s announcement follows CEO Elon Musk’s recent outspoken support for cryptocurrency and is the latest example of mainstream adoption of bitcoin as a liquid cash investment.

Bitcoin rallied over 15% to all time highs following Tesla’s announcement. Tesla’s purchase of the cryptocurrency further legitimizes bitcoin as a feasible investment and cash alternative. I would not be surprised if more corporations follow Tesla’s lead and convert a portion of their cash balance into bitcoin. Considering the “limited supply” structure of bitcoin, mass-corporate adoption will drive the value of bitcoin upward and decrease volatility.

Tesla’s written rationale for the move was a means to “diversify and maximize returns on our cash that is not required to maintain adequate operating liquidity.” This indicates the company’s conviction that bitcoin possesses greater upside that US dollars. It raises the question of why? Upon further research, it seems that bitcoin is viewed by some experts as a safer cash alternative to the USD. The USD is regulated by the Fed, whose policies can dramatically influence the value of the dollar. The pandemic has proven to be a perfect example of the Fed pumping money into the economy as a form of relief. However, experts worry that the influx of cash will cause significant inflation, which proves extremely consequential to corporations. While a 1-2% increase in inflation may sound minuscule, for companies with billions in cash on the balance sheet, the increase translates to multimillion losses in purchasing power.

I believe that Tesla’s bitcoin move marks an early entrance in a soon to be wave of mass institutionalization of cryptocurrency. Bitcoin and other decentralized cryptocurrencies represent a likely cash storage that isn’t subject to inflation.

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The informational content of this article is not intended as, and shall not be understood or construed as financial advisor. At the time of writing the article, the author holds an existing position in the cryptocurrencies discussed.